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Weekly Downgrade Wrap-Up

As usual, we have a weeks worth of ratings actions on the debt of buyout-backed companies from ratings agencies Moody’s and Standard & Poor’s. Dollar General got upgraded, CD&R’s new deal got downgraded, and things are still ugly at Hexion.

Company: NCI Building Systems Inc.
Sponsor: Clayton, Dublier & Rice
Action: NCI has entered into a definitive agreement with a fund managed by Clayton, Dublier & Rice, which will invest $250 million in the company in the form of preferred equity. The deal will reduce and amend its $400 million (current balance of $293 million) term loan as well as initiating an exchange offer for its notes. S&P lowered the corporate credit rating to ‘CC’ from ‘CCC+’ pending completion of the transactions.
Highlights: From S&P: “It is our preliminary expectation that, in the event the exchange succeeds, the corporate credit rating would be in the ‘B’ rating category, recognizing that the post-exchange capital structure would substantially reduce NCI’s debt and extend debt maturities for another five years. A rating in the ‘B’ range would also acknowledge that the post-exchange capital structure, combined with management’s continued cost control measures, would allow the company somewhat greater capacity to weather the current downturn over at least the next several quarters.”

Company: Tensar Corp.
Sponsor: American Capital
Action: S&P lowered its corporate credit rating on the company to ‘CCC’ from ‘B-‘.
Highlights: “The downgrade reflects our concern regarding the company’s deteriorating operating performance, reflected by declining revenues and EBITDA due to worsening commercial construction activity,” said Standard & Poor’s credit analyst Tobias Crabtree.

Company: Reader’s Digest
Sponsor: Ripplewood Holdings
Action: S&P downgraded the company to “D” because of the company’s failure to make an interest payment due on Aug. 17, 2009, on its 9% senior subordinated notes due 2017.
Highlights: The company announced that it expects to implement a restructuring through a pre-packaged filing under Chapter 11 of the U.S. Bankruptcy Code.

Company: Apollo Management
Sponsor: Hexion Specialty Chemicals
Action: S&P lowered its issue-level ratings on Hexion Specialty Chemicals Inc.’s 9.2% debentures due 2021, 7.875% debentures due 2023, and 8.375% debentures due 2016 to ‘D’ from ‘CCC’.
Highlights: “Our rating action follows the company’s recent announcement that it purchased a total of $71 million in face value of these debentures for a cash consideration of $31 million,” said Standard & Poor’s credit analyst Paul Kurias.

Company: Dollar General Corp.
Sponsor: KKR
Action: S&P placed its ratings, including the ‘B+’ corporate credit rating, on the company on CreditWatch with positive implications.
Highlights: “The CreditWatch placement follows Dollar General’s S-1 filing, under which it plans to sell $750 million in common stock. Dollar General plans to use a portion of the proceeds to repurchase a mix of its existing subordinated and senior unsecured notes, subject to a 35% equity clawback provision under these indentures. In addition to the common stock offering, Dollar General plans to pay a $200 million dividend to its equity sponsors with cash from operations.“